All posts on August, 2017


ApprovedBusiness and financeFINANCEFinance and economics

Russia’s largest private bank is rescued by the central bank

VADIM BELYAEV’S start in business in the mid-1980s was to sell foreign watches on the black market in the Soviet Union. He became a financier, and by 2015 had transformed his bank, Otkritie, into post-Soviet Russia’s largest private lender. Named “Businessman of the Year” by a Russian magazine, he used an English term to describe himself: “Risk-taker”. The risks have caught up with Otkritie. A run on its deposits led this week to its takeover by the central bank (CBR). The rescue is likely to be the largest in modern Russian history.

Russian banking has been plagued by lenders with bad loans and inadequate capital, and “pocket” banks that function as money-laundering hubs for influential businessmen. The CBR has embarked on a campaign to clean up the sector, taking on formerly untouchable banks with powerful shareholders and clients. Since 2013 it has shut down more than 300 banks.

Otkritie rose rapidly, out of a small predecessor bank acquired in 2006. It has…Continue reading

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Of Indian banknotes cancelled last year, 99% are accounted for

ON NOVEMBER 8th 2016, Narendra Modi, India’s prime minister, stunned its 1.3bn people by announcing that most banknotes would soon become worthless. Indians then queued for weeks on end to exchange or deposit their banned money at banks. The comfort for the poor was that the greedy, tax-dodging rich would suffer more, as they struggled to launder their suitcases full of cash by year-end.

Not so. A report from the central bank, the Reserve Bank of India (RBI), on August 30th suggests that of the 15.4trn rupees ($241bn) withdrawn—roughly 86% of all banknotes by value—15.3trn rupees, or 99% of them, have been accounted for. Either the “black money” never existed or, more likely, the hoarders found a way of making it legitimate.

Defenders of the scheme say it is merely one plank of a wider fight against informal economic activity and corruption. Banks have enjoyed an influx of cash. Digital payments are up (from a low base), as issuance of replacement notes has not caught…Continue reading

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Naspers comes under fire for free-riding on Tencent

SOUTH AFRICA’S stockmarket has Naspers largely to thank for its recent record highs. Shares in the media and internet group have soared by 45% this year; even before then it was Africa’s most valuable firm. So recent unrest among shareholders in Naspers might seem unwarranted. But in the days before its annual general meeting in Cape Town on August 25th, noisy debate erupted, chiefly about executive pay. Many investors reckon that Bob van Dijk, its boss, is being rewarded for success that he did little to create.

The source of good fortune for Naspers lies about 7,000 miles (11,265km) away. In 2001 Koos Bekker, Mr van Dijk’s predecessor, made a brilliant investment of $32m in a little-known Chinese technology firm called Tencent. Today its 33% stake is worth $130bn, as measured by Tencent’s value on the Hong Kong stock exchange; that dwarfs the $100bn valuation of Naspers itself on the Johannesburg stock exchange. Shares in the latter rise and fall on news from Hong Kong. In its…Continue reading

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Pricey housing markets mean co-living buildings are on the rise

 

MONDAY is “Game of Thrones” night at The Collective’s Old Oak building. Millennials congregate in TV rooms around the 11-storey, 550-person block. Some gather at the cinema, lounging on bean bags decorated with old graphics from Life magazine. Nothing gets residents out of their rooms like the hit TV show. This is not a student dorm, however. It is home.

The Collective is a pioneer of a new property format known as “co-living”. Instead of self-contained flats, residents live in tiny rooms with 12 square metres of floor space. Most contain just a bed and a bathroom. During a two-night stay your correspondent could barely fit his shoulders into the shower cubicle.

It is outside these rooms that the building makes its pitch. It comes with a gym, spa, libraries, a good restaurant and a cinema. Residents get access to all of these amenities, as well as their room, for a rental payment of £800-£1,000 ($1,033-$1,292) a month. That includes all bills and high-speed Wi-Fi; they pay extra for meals in the restaurant. Residents have come up with their own services, too. The Collective houses a “library of things”, or a shared repository of useful objects—hammers, tape measures and even tents.

Rising rents have opened up a gap in the market. The ratio of average rents to incomes in London rose from a quarter…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

Foreign jurisdictions try to lure legal business from London

National treasures

LOFTILY as they may disdain the profit motive, Britain’s judges are, on a national level, money-spinners. English law is often specified as the one under which commercial contracts are to be interpreted and enforced. And disputes often end up being heard in British courts. But, like any business, the law is competitive, and other jurisdictions want to snatch a share of this market. London is mounting its defences.

It has several hard-to-beat advantages: the use of English; a reputation for fairness; the centuries of precedent that lend predictability. Richard Caird, a partner at Dentons, a global law firm, notes that a foreign company can expect an impartial decision in an English court, even if it is pitted against a British firm. Over 70% of cases in the English commercial courts involve a foreign party. In 2015, Britain had a £3.4bn ($5.2bn) positive balance of payments on legal services.

One way for other financial centres,…Continue reading

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Cargill, an intensely private firm, sheds light on the food chain

ANGLERS love a record catch. Fish farmers, too. So when a salmon bred and raised near this village at the head of a Norwegian fjord was pulled out of captivity earlier this year weighing a sumo-sized 17kg, it was cause for jubilation. “It was fantastic,” says Einar Wathne, head of aquaculture at Cargill, the world’s biggest food-trading firm. Not only was it produced in 15 months, one-fifth faster than usual, it also looked and tasted good. Mr Wathne’s Norwegian colleagues celebrated by eating it sashimi-style shortly after its slaughter.

Cargill is a company usually associated with big boots rather than waders. America’s largest private company has built a reputation after 152 years of existence as middleman to the world, connecting farmers with buyers of human and animal food everywhere. Through a trading network that spans 70 countries (and that includes scores of ports, terminals, grain and meat-processing plants and cargo ships), it supplies information and finance to…Continue reading

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Analysts struggle to make accurate long-term market forecasts

WHAT is the right way to invest for the long term? Too many people rely on past performance, picking fund managers with a “hot” reputation or backing those asset classes that have recently done well. Just as fund managers cannot be relied on to be consistent, returns from asset classes are highly variable. The higher the initial valuation of the asset, the lower the future returns are likely to be.

That is pretty clear with government bonds. Anyone buying a bond with a yield of 2% and holding it until maturity can expect, at best, that level of return (before inflation) and no more. (There is a small chance the government might default.) With equities, the calculations are not quite so hard-and-fast. Nevertheless, it is a good rule-of-thumb that buying shares with a low dividend yield, or on a high multiple of profits, is likely to lead to lower-than-normal returns.

So a sensible approach to long-term investing would assess the potential returns from asset classes, given their…Continue reading

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Market concentration can benefit consumers, but needs scrutiny

WHEN Amazon announced in June that it would buy Whole Foods, an upmarket grocer, for $13.7bn, other firms shuddered. The spread of Amazonian tentacles is worrying to those wary of concentrated corporate power. But shoppers entering their local Whole Foods these days find oddly low prices alongside the new stacks of Echoes, Amazon’s voice-activated digital helpmate. This raises a question. Is Amazon hellbent on building a world-straddling monopoly, or merely injecting innovation and competition into yet another new market? For antitrust regulators, the welfare of the consumer is the priority. Yet working out how to protect it is harder than ever.

Competitiveness in most industries is a matter of degree. In the idealised marketplace of economics textbooks, the price people pay for goods equals the cost of producing an additional unit. Any higher, the theory goes, a competitor could cut the price a smidgen, sell another unit and profit. Yet outside commodity markets, most firms can charge…Continue reading

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